Consumers responded to a flurry of government incentives by
speeding up purchases of home appliances, furniture and
computers. Tame inflation and rising wages also supported
supermarket sales, which many analysts had expected to drop.

Economists said strong demand should not derail expectations
for a ninth interest rate cut later this month by the central
bank, as Brazil's manufacturing sector continues to struggle
with low investment rates and smothering costs.

Retail sales volumes rose 1.5 percent in June from May
, government statistics agency IBGE said on Thursday.

The median forecast in a Reuters poll of economists was for
a drop of 0.3 percent. The most upbeat of the 24 analysts polled
expected sales to rise 0.75 percent.

"It's obviously a very good indicator, though it's just a
one-time number. It shows that demand responded to the stimulus
provided by the government," said Ines Filipa Pereira, chief
economist at ICAP Brasil, in Rio de Janeiro.

Private data from Brazil's national supermarket association
pointed to weak sales in the sector, which make up more than
half of Brazil's retail index. But supermarket sales rose 0.8
percent in June from May, according to IBGE.

A broader measure that includes sales of motor vehicles and
building materials soared 6.1 percent in June from May after tax
breaks to boost car sales.

The world's No. 6 economy has relied on its 200 million
consumers to avoid a recession in the past few quarters.

As Brazilian manufacturers cut back investments to cope with
lower foreign demand and high costs at home, President Dilma
Rousseff's government deployed a series of stimulus measures,
from targeted tax breaks to steps to curb the rise in the real
currency.

On top of that, the central bank has slashed interest rates
eight times over the past year to a record low of 8 percent.
Analysts expect the bank to cut rates at least twice again this
year, to 7.25 percent, with a 0.5 percentage point cut expected
later this month.

JOB GROWTH FUELS CONSUMPTION

While some economists argue that Brazil's consumer-based
model has shown signs of exhaustion, authorities hope strong
demand could drive up investments in local production and lead
to another cycle of economic growth.

After the sales report, Finance Minister Guido Mantega said
he expected the Brazilian economy to expand at an annual rate of
around 4 percent by the end of the year.

Official data showing a rise in job growth in July hinted at
further improvement in Brazil's consumer market last month, with
a net 142,496 payroll jobs added in the month. That was a rise
from June and from the same month a year before.

Yields on interest rate futures jumped after the
retail sales data was released, signaling that traders see less
chance of an extended cycle of interest rate cuts.

The implied probability for a 0.5 point cut this month,
however, remained around 80 percent.

"Even though we are seeing such strong retail sales,
Brazil's industry remains depressed by the European crisis and
China's slowdown," said Luciano Rostagno, chief economist at
WestLB in Sao Paulo.

June's retail sales rose 9.5 percent from the year-earlier
period, the IBGE said, more than the 6.5 percent
median estimate in the Reuters poll. Forecasts ranged from 5.5
percent to 8.7 percent.

IBGE revised upward the rise in May retail sales from a year
earlier to 8.3 percent, compared with a previously reported 8.2
percent.